Study: OAS key to keeping seniors out of poverty

This article was published by iPolitics.ca on February 1st 2012. To see this article and other related articles on the iPolitics website, please click here.

Research prepared for the federal government shows that the old-age benefits cited by Stephen Harper as perhaps unsustainable are a key factor keeping seniors out of poverty.

The technical, 80-page paper shows that without Old Age Security or the Guaranteed Income Supplement, more than a third of women and more than a quarter of men in their 60s would fall below the poverty line.

“The OAS programs have a significant influence on the incidence of low income,” the report’s author, Richard Shillington, wrote.

By region, the benefits are most important in the Maritimes and the North, while seniors in Alberta are not as dependent on public pension benefits to make ends meet.

Women are generally far more dependent on OAS and GIS than men. Single seniors are also vulnerable.

The paper, titled Evaluation of the Old Age Security Program, was written by social policy researcher Shillington in 2009, on a contract with the Ottawa-based econometrics firm Informetrica Ltd. It was prepared for the Human Resources Department.

The research was obtained by the Canadian Labour Congress through an access-to-information request and provided to The Canadian Press.

“The OAS/GIS makes a huge contribution to the reduction of poverty in old age,” said Andrew Jackson, chief economic for the labour congress.

Prime Minister Harper announced last week that the public pension system is on an unsustainable fiscal track and needs a serious overhaul.

He has not released specifics, but officials and cabinet ministers have let it be known they are eyeing the OAS, since its costs — when combined with the GIS — are expected to rise to $108 billion in 2030 from $41 billion this year.

There are several ways to cut costs, but the likely leading option is to gradually raise the age when seniors can begin collecting the benefits to 67 from today’s 65.

“We will implement any changes fairly, allowing lots of notice and time to adjust,” Alyson Queen, a spokeswoman for Human Resources Minister Diane Finley, said Wednesday.

The presumption, said Jackson, is that people will simply work for an extra two years. But he says that’s not an option for many vulnerable people.

“Raising the age of eligibility for OAS/GIS from 65 to 67 would likely result in a very significant increase in poverty for persons aged 65 to 67, unless they were able to find an alternative source of income,” he said.

“That is possible for some, but many older workers in their 60s are in ill health or are engaged in providing care for others.”

OAS and its cousin, GIS, are intricately entwined. About 98 per cent of Canadians are eligible to receive OAS when they turn 65. In order to get the GIS top-up for low-income seniors, they first need to qualify for OAS.

So raising the eligibility age of OAS would imply a corresponding increase in the age to receive GIS, unless legislation were passed to change the rules.

The research paper shows that OAS and GIS improve the average senior’s standard of living by about $7,000 a year.

The benefits are central to the average person’s well-being. Generally, OAS makes up 26 per cent of seniors’ incomes. For people who receive GIS as well, that percentage rises to 36 per cent, the research shows.

And for seniors of “modest” incomes, OAS and GIS provide about 70 per cent of their incomes, the paper said.

The benefits become more and more important as seniors age, especially women.

But even for those in their 60s, the benefits are often the difference between making ends meet or not, the paper says.

The data shows that for women between 65 and 69 years old, 35.4 per cent would fall below the low-income measure — one of the main ways Statistics Canada measures poverty. But with the benefits from OAS and its related top-ups, the incidence of low income is 14 per cent.

For men between 65 and 69 years old, 26.8 per cent would fall below the low-income measure without OAS and GIS benefits. But with the benefits, their poverty rate is 11.4 per cent, the paper shows.

While Shillington wrote the paper three years ago, he said in an interview that the conclusions remain relevant. Numbers may change slightly, but the study looks at large quantities of income tax data over many years and major shifts are slow to happen.

“The differences would not be relevant for policy decisions,” he said.

The study underlines why the government needs to review the public pension system now, Queen said on behalf of Finley.

Both Shillington and Jackson says they’re concerned that if the government says seniors can’t collect OAS and GIS until they are 67, many people won’t be able to keep working.

Their needs may drive up provincial welfare costs, or they may simply be left without a social safety net, since welfare is often denied to people who own homes, said Shillington.

“Certainly the provinces would have to expand welfare,” he said.

Despite the Conservatives’ insistence that OAS and GIS are not sustainable in the long run, government documents and many economists say that even though costs are rising, the government can afford them if it wants to.

But if the government chooses to cut OAS costs, it doesn’t have to raise the eligibility age, Shillington said. It could claw back more of the money from high-income individuals, or apply the claw-back to family income instead of individual income.